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Government to expand SME Loan scheme

by Annie Kane13 minute read
Government to expand SME Loan scheme

The Treasurer has announced that the scheme will expand and extend, taking loans up to $5 million and helping businesses to refinance their existing loans.

The federal government has announced that it will expand and extend its Coronavirus SME Loan Guarantee Scheme as part of its commitment to support up to $40 billion in lending to small and medium enterprises. 

The SME Recovery Loan Scheme is specifically targeted at SMEs currently receiving JobKeeper. The scheme is only open to recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021.

It will see government take on more of the guarantee, moving from a 50/50 backing with banks to an 80/20 split.


“This will encourage more banks to support small businesses and demonstrates the government’s commitment to back those businesses that are prepared to back themselves,” Treasurer Josh Frydenberg said.

The expanded scheme will also increase the size of eligible loans (which can be either secured or unsecured, excluding residential property), increasing from $1 million under the current scheme to $5 million.

Loan terms will increase from five to 10 years and lenders will be allowed to offer borrowers a repayment holiday of up to 24 months.

The interest rate on loans will be determined by lenders, but will be capped at around 7.5 per cent, with “some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time”.

Loans will be available from 1 April 2021 and must be approved prior to 31 December 2021.

The maximum eligible turnover for businesses will also increase from $50 million to $250 million.

Loans can be used for a broad range of business purposes, including to support investment (for example, the acquisition of another business) and for the purchase of commercial property.

Mr Frydenberg added that the scheme will also be able to be used by eligible businesses to refinance their existing loans, including those from the SME Guarantee Scheme.

“This will allow SMEs to access the more concessional interest rates available under the program and to better manage their cash flows through an extended loan term and lower combined repayments,” he said.

However, there will be some restrictions on refinancing loans, such as not allowing loans that are more than 30 days in arrears to be refinanced, nor allowing borrowers who have entered external administration (or are insolvent) to refinance debts using the SME Recovery Loan Scheme.

Lenders can vary or restructure loans as long as they continue to meet eligibility criteria (including the maximum loan term) and do not increase the loan limit after approval.

According to the Treasurer, more than 35,000 loans worth more than $3 billion have already been provided under the SME Guarantee Scheme, with the new recovery phase targeted and tailored to support those businesses that have been relying on JobKeeper during the March quarter.

More than 350,000 current JobKeeper recipients are expected to be eligible under the expanded scheme. 

“This SME Recovery Scheme is part of the next step in our plan to help small businesses stand on their own two feet as the economy recovers from COVID-19,” Mr Frydenberg said.

“The expansion and extension of the loans will back businesses that back themselves and will help businesses who continue to do it tough build a bridge to the other side of the crisis and keep their staff employed.”

Phase 2 of the existing SME Guarantee Scheme will remain open to eligible borrowers until 30 June 2021.

SMEs who already have Phase 1 or Phase 2 SME Guarantee Scheme loans will be able to apply for loans under the SME Recovery Loan Scheme, too.

‘Flight path to recovery’

The move to expand the SME Guarantee Scheme comes as part of a new $1.2 billion support package from the government.

Under the package, there will be half-price airline tickets and direct support to “keep planes in the air, and airline workers in their jobs”.

The half-price ticket program will initially operate to 13 key regions, including the Gold Coast, Cairns, the Whitsundays and Mackay region (Proserpine and Hamilton Island), the Sunshine Coast, Lasseter and Alice Springs, Launceston, Devonport and Burnie, Broome, Avalon, Merimbula, and Kangaroo Island.

Flights, routes and the total number of tickets will be driven by demand and “are subject to final discussions with the airlines”.

The discounts will be off the average fare and will be available on airline websites from 1 April. 

The $50 million Business Events Grants Program will also be extended by three months to support Australian businesses to hold multi-day business events, covering up to 50 per cent of costs incurred in participating business events during the 2021 calendar year to “help restart Australia’s business events sector”.

The $94.6-million Zoos and Aquarium program will also be extended by six months to support zoos, aquariums and wildlife parks to maintain their animal populations where their tourism revenue has been affected by travel and social distancing restrictions.

The COVID-19 Consumer Travel Support Program will also be extended for three months beyond 13 March. 

Treasurer Josh Frydenberg said this latest package of measures was all part of the federal government’s National Economic Recovery Plan: “We know there are sectors and regions across the country that are continuing to do it tough, which is why we will continue to support the economy with proportionate, timely, scaleable and targeted assistance.

“Our support for the aviation sector will not just keep planes in the air but will also provide a boost to domestic tourism while our international borders remain closed,” the Treasurer said.

Prime Minister Scott Morrison said that while Australia’s economy had recovered 85 per cent of its fall from COVID-19, this next step in the government’s National Economic Recovery Plan would target the businesses, workers and regions “still doing it tough”.

The Prime Minister said the package’s mix of half-price airline tickets, “cheap loans” for businesses and direct support to keep planes in the air, and airline workers in their jobs, would “be a bridge to a more normal way of life for Australians”. 

“This is our ticket to recovery – 800,000 half-price airfares to get Australians travelling and supporting tourism operators, businesses, travel agents and airlines who continue to do it tough through COVID-19, while our international borders remain closed,” the Prime Minister said. 

“This package will take more tourists to our hotels and cafes, taking tours and exploring our backyard. That means more jobs and investment for the tourism and aviation sectors as Australia heads towards winning our fight against COVID-19 and the restrictions that have hurt so many businesses.”

“Our tourism businesses don’t want to rely on government support forever. They want their tourists back. This package, combined with our vaccine rollout, which is gathering pace, is part of our National Economic Recovery Plan and the bridge that will help get them back to normal trading.”

[Related: Second phase of SME Guarantee Scheme launched]

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